Under the old system, there were many timelines and deadlines. Inspections had to be done by a certain date, followed by several repair deadlines. Then there was a separate deadline to make a loan application followed by a deadline for confirming financing and a few other deadlines all of which had to be met to make a smooth closing.

Under the new system, all of that is gone. Instead, there is a single deadline – the “Option Termination Date.” When the initial deal is finalized, the buyer pays a negotiated amount [the "Option Fee"] which is non-refundable, and gets the right to do whatever inspections and reviews are necessary for an amount of time negotiated between the buyer and seller. Until that period ends [the "Option Termination Date"], the buyer has the right to withdraw from the agreement for any reason, or no reason at all and keep the earnest money. After that date, the seller generally keeps the earnest money if the contract is terminated [unless, of course, the seller breaks the contract].

(This is, in fact, the way commercial real estate has been for years. It is also very much like the “Alternative 2″ section in the old contract)

So, why is this an improvement for Durham home buyers and sellers? First of all, it makes the closing process easier. All the schedules and timelines have been replaced by one go/no go date. That makes the process easier to explain, easier to track, and leaves little room for “gotchas.”

Secondly, it lowers the mental threshold for entering into a contact. If a buyer likes a property, there is the chance to “put it on layaway” for a period of time. This could lead to faster sales as that one big hurdle for buyers is split into several smaller decisions.

Overall, it remains to be seen what all the impacts are going to be. In particular, it will be interesting to see what is paid in Option Fees. Local real estate agents are divided on this — some feel that it will approach the mortgage payments required during the Option Period, while others feel option fees will be relatively low. Personally, I fall in the latter camp — I expect to see Option Fees in the $250-$500 range with an equivalent reduction in the earnest money offered.

We will certainly keep an eye on how this shakes out. Hopefully, as transactions using the new forms start of close in February, we will begin to see how the wind blows. When we get that forecast, we’ll certainly let you know.

Administration Declines to Halt All Foreclosures

[As an aside, North Carolina is one of the "23 states that require court approval" for foreclosures]

Experts have disagreed about how serious this issue may become, but it is clear that several major mortgage lenders will not be processing foreclosures for at least the next couple of months. Let’s go with that — significantly all major mortgage lenders decide to halt foreclosures through the end of the year. How will this effect the Durham housing market? And what should homeowners do about it?

The answer lies in that demon of Econ 101 – the supply and demand curve. If banks stop processing foreclosures, the supply of bank-owned homes will decline. This may not happen immediately, as there is some processing time, but you would see it 6 to 8 weeks down the road. [Important caveat: If lenders start pulling properties off the market, which has not happened locally yet, this effect will be seen quicker] With demand remaining constant and supply declining, we should see some support in home values. this might be seen in improving prices, quicker sales or both starting in the first months of 2011.

So in the short term, this is good news, but what happens when all this is over? Banks are going to make up for lost time and the supply of bank-owned property is going to increase. So the exact opposite effect happens — supply goes up so prices will fall. In many ways, this will be the same as when the tax credit expired – a short term boost paid for with slower sales down the road.

Want some specific advice?

• If you are a homeowner in trouble or facing foreclosure, you have more options available to you. Depending on who holds your mortgage, you might have several extra months to stay in your home. Hopefully, banks will also be more willing to accept a short sale, as that will be one less home they need to foreclose on. If you list your home now, you might be able to sell it before the foreclosure suspension ends.
• If you are a home buyer, you want to move quickly to find a new home and get it under contract before the “new reality” pushes prices higher. You can negotiate for an extended closing date, but you should consider having a home under contract by Thanksgiving, especially if you are looking for the “sweet foreclosure deal.”
• If you are even thinking about selling your home in the next year, you should be prepared to list your home ASAP. There will be a small window of opportunity where a home that is priced right can sell before that wave of bank-owned properties pushes prices back down. List it today, price it to sell by Thanksgiving, and you might be very happy with the results.

Like any change, this could be a great opportunity if one is prepared to take advantage of it. If you are interested in taking advantage of upcoming opportunities, please email me and we’ll get started.

[Image credit: Jeff Turner via flickr]

The article tries to discuss the main ways a buyer can get a “deal” on buying their new home. I think, however, they gave too little attention to the traditional way people buy homes — making a purchase of a non-distressed property from a unhurried seller. The overall relative strength of the Triangle’s real estate market means that many, probably still most, of the homes sold in our market are sold just like they always have been ["at retail" some would say]. Since this is the baseline, it isn’t talked about much in the article, but it’s important to realize this is still how most homes are sold in our market.

The first big group this article talks about is Bank Owned Properties. It notes that the average discount on such homes is in the 20%-30% range. There is a reason for this: most of these homes were not cared for well before the bank took them over, and being vacant for extended periods of time only makes those issues worse. Even in the best of these homes, one should expect to do some painting, carpet replacement and basic maintenance catch-up. My two major additions;

1. Bank owned properties are almost always sold “as-is.” This puts extra risk onto the buyer as any problem becomes theirs. I strongly encourage my buyers to have bank owned property inspected promptly – sometimes even before an offer is presented to the bank.
2. Banks almost always have their own forms, which they require in any transaction. These forms usually are very slanted towards the seller. The help of a professional is always a good idea when dealing with a bank-seller.

Next up is Short Sales – a situation where a private seller is selling the home for less than what is owed, and the bank agrees to eat the difference. The issues here are simple and straightforward. The buyer will generally get a small [maybe 10%] discount on the purchase price, but they have to work through the banks process to get there. In particular, they have to accept that the process will take a long time, and that the bank may still reject everything at the end

Finally, the article talks about New Home Construction. The writer seems to feel that the time for deals on new construction has passed. I’m not convinced that is the case. During the slump, developers had plenty of land, plenty of skilled labor, and little demand. Prices normally fall in those situations, and new housing should be no exception. In fact, in some markets outside of the Triangle, new construction can be cheaper than an equivalent older home, as price drops attempt to keep people in that market.

Where we are really seeing concessions here is in upgrades and improvements. Builders are reluctant to move on the price for the frame, but those granite counter-tops, better electronics and stainless appliances are certainly easier to come by. A skilled negotiator can certainly earn his keep with strong negotiations in these areas.

I think we [the author and I] agree that deals are out there. Like anything else in life, however, getting the best deal requires work. If you’re interested in exploring any of these markets, please send me an email, and I’ll start working to find the right new home for you.

Why does this matter? The National Association of Realtors has estimated that 180,000 eligible buyers were not going to complete their purchase prior to the June 30 deadline. There are several possible reasons for this. With the looming deadline, many lenders were overwhelmed with applications [I know of one lender who had an internal deadline prior to April 30 for loan applications] and were simply unable to complete their paperwork in a timely manner. Also, if a home buyer was looking at a foreclosure or a short sale, the added delays could easily push a closing  out past 60 days. Now those people have another three months to finish up the transaction.

As an added bonus, the same legislation reauthorizes the National Flood Insurance Program. this ends the legal limbo some buyers were in where they were required to purchase flood insurance, but the Feds weren’t offering it. The combination of these two measures should bring some additional stability to a housing market that could certainly use it.

[The raw data of the survey comes from Prudential. The graphics and analysis come compliments of Tara Steele and Agent Genius]

* People still in the market think the end of the credit will have little effect

. . . but they felt the credit helped them enter the market in the first place

even though other factors are larger drivers on the market

It’s certainly worth taking a few moments to read the raw data or the graphical interpretation depending on how you process data. What I took away from it was that the tax credit did what it was supposed to. It got people off the fence in 2009 and early 2010 at the expense of slightly slower sales in later 2010. As time went on, however, larger issues such as employment have a greater influence on the buying decision.

We’ll see over the next few months what the price is for having the credit over the past two years.

• Closing costs
• The purchase of new Whirlpool appliances by Fannie Mae
• Any combination of closing costs and appliances up to the 3.5% limit

Like anything, this offer has some limitations;

• Offers must be accepted on or after January 28, 2010
• Property sales must close before May 1, 2010
• Buyers must be owner-occupants, investors are excluded

This is a great incentive to get people looking at HomePath, especially since the $8,000 tax credit can’t be used towards a downpayment. The incentive gets you past the closing and into the home, while the $8,000 tax credit can take care of the first six months of payments.

If you’re interested in making an offer on a HomePath home, please send me an email. To take advantage of the $8,000 tax credit, you must have a home under contract by April 30, which is less time that most people think.

We’ll be holding the Open House on Sunday, January 10 from 3PM until 5PM. I hope to see you there!

The Good Faith Estimate. When one applies for a mortgage, the lender is expected to provide an estimate of the expenses and fees involved in getting the new mortgage. Starting in 2010 those estimates will be given on a standardized form – the Good Faith Estimate. This form lays out all the charges related to the loan and note which charges can not change, which can change a small amount, and which have no restrictions. By doing this, HUD hopes to make comparison shopping easier and to help consumers understand the loan they are applying for.

The second form is a revised Settlement Statement or HUD-1 form. The HUD-1 is given to the buyer and seller by the closing attorney prior to closing [supposedly 24 hours prior - usually about 30 minutes prior] and is the official record of where all the money comes from and where it ends up. The new form has a new section which compares the actual settlement costs to the Good Faith Estimate and a final section which spells out the details of the mortgage in relatively clear English.

Overall, these changes are pretty positive. They make good strides towards making the money trail in a closing clear and in making the estimates given by lenders mean something. They certainly aren’t perfect — for example the Good Faith Estimate doesn’t actually tell the borrower what the mortgage payment is — but I expect a couple of quick revisions will take care of the main points.

For a great review of the new forms, including some sample forms, take a look at the Virginia Association of Realtors website. Since the forms are Federal, their comments should also be valid here in NC.

[Thanks to Tina Merritt and the Trump Blog for pointing out the VAR site]